Finance minister P Chidambaram has done what he does best, given salaried tax payers a reason to smile. The Union Budget for 2005-06 today raised income tax exemption limit to Rs one lakh. He also restructured tax slabs, lowered corporate tax to 30 per cent and slashed excise and customs duties on several commodities, including petrol and diesel, giving the home maker reason to smile some more.
Presenting the Congress-led UPA government's second budget, he raised the exemption limit for women and senior citizens. In an overhaul of direct taxes and to provide stability in the medium term, Chidambaram raised the basic income tax exemption limit to Rs one lakh from the present Rs 50,000.
Incomes between Rs1 lakh and Rs1.5 lakh will now attract 10 per cent tax, while incomes between Rs1.5 and Rs2.5 lakh 20 per cent and incomes above Rs2.5 lakh will attract 30 per cent. Further the 10 per cent surcharge will apply only to incomes above Rs10 lakh. His direct proposals to yield additional Rs 6,000 crore a year.
Given the higher exemption limits and scaling up of tax brackets, the FM has removed the standard deduction and reduced the plethora of exemptions to six as a clean up operation.
Amidst noisy reactions from the honourable members of parliament, which prompted Speaker Somnath Chatterjee to calm the house down with, "We will protest later," Chidambaram also slapped a 0.1 per cent tax on cash withdrawals of Rs10,000 a day from banks as an "anti-black money" measure but announced no amnesty scheme for evaders, much to their disappointment.
The securities transaction tax (STT), introduced last year, has been raised to 0.2 per cent from 0.15 per cent.
While excise duty on automobile and aerated water was left untouched at 24 per cent, he levied 10 per cent specific excise duty on cigarettes and tobacco products. "What better way is there to fund health care than tax those goods which are health hazards?" he asked with a broad smile and added, "I, therefore, propose to raise some additional resources and allocate the proceeds to finance the National Rural Health Mission. Accordingly, I propose to increase the specific rate on cigarettes by about 10 per cent and impose a surcharge of 10 per cent on ad valorem duties on other tobacco products including gutka, chewing tobacco, snuff and pan masala. However, bidis will not be subject to this levy."
The indirect proposals are broadly revenue neutral.
also see : Indirect Taxes: Spurring investment